A “For Sale” sign in front of a home in Washington, D.C. on March 14, 2022.
Stephanie Reynolds | AFP | Getty Images
Sales of previously owned homes fell 7.2% m/m in February to a seasonally adjusted 6.02 million year-on-year sales, according to the National Association of Realtors.
It fell short of analysts’ expectations of 6.13 million units. Sales were 2.4% lower compared to the same month last year. Rising mortgage rates likely played a role in the disappointing numbers.
The sales count is based on closures, which means the homes were likely contractually sold in December and January. This is important to note as mortgage rates were relatively low in December, with the average rate on popular 30-year fixed loans hovering around 3.25%, according to Mortgage News Daily. But then the figure began to rise steadily in January, reaching 3.68% by the end of the month. Now the rate is much higher and amounts to 4.5%.
“It will be very interesting to see what happens in the coming months as mortgage rates make a much bigger jump,” said Lawrence Yun, chief economist at the real estate agency.
While some sales figures may have been impacted by higher rates, the bigger issue for housing today is very low supply. There were more homes on the market in February compared to January, but there were only 870,000 homes for sale at the end of the month, down 15.5% from last year. At the current rate of sales, this corresponds to a 1.7-month supply, which is close to an all-time low.
Limited supply and strong demand continued to push prices higher. The median price of an existing home sold in February was $357,300, up 15% from a year ago.
This price is somewhat skewed by the combination of homes currently for sale and the price range in which sales are most common. The supply is the scarcest at the bottom of the market. Sales of homes priced between $100,000 and $250,000 are down 26% year on year. Sales of homes priced between $750,000 and $1 million increased by 24%. Sales of homes worth more than $1 million jumped 21%.
The competition for a limited supply of homes for sale is getting fierce again. Houses go under the contract in just 18 days. Nationwide, 68.6% of home listings written by Redfin agents have faced bidding, according to a new seasonally adjusted report from the real estate brokerage. This was the highest level since Redfin started counting in April 2020.
“The bidding wars have intensified this year after rates began to soar, setting buyers on fire. Competition is likely to stabilize or even decline if rates continue to rise as expected,” said Daryl Fairweather, chief economist at Redfin. “Monthly mortgage payments for new buyers are already at an all-time high. As they continue to grow, some buyers will fall by the wayside.”
Loyal homebuyers face stiff competition from investors. The share of investors in sales in February was 19%.
First time homebuyers, who typically look for homes in the lower end of the market, were 29%, up slightly from January but well below the historical average of around 40%. At current mortgage rates and higher home prices, buyers today are paying 28% more in monthly payments than they would pay for the same home a year ago.
“We expect home sales to remain relatively strong throughout 2022 as homebuyers get creative in how they spend their budget on housing amid rising prices for competing costs such as energy, food and childcare driven by inflation,” said Danielle Hale, head. economist at Realtor.com. “So far, buying activity has been resilient to additional home ownership costs, but demand will be tested by an unusual year.”